First Resources - Maybank Kim Eng 2016-07-27: Expect stronger QoQ results

First Resources - Maybank Kim Eng 2016-07-27: Expect stronger QoQ results FIRST RESOURCES LIMITED EB5.SI 

First Resources (FR SP) - Expect stronger QoQ results

Negatives priced in

  • After a dismal 1Q16 core PATMI of USD5m, we expect FR to post higher 2Q16 core PATMI of ~USD20m on higher CPO ASP achieved and output. 
  • But results could still be below expectations as 2Q16 output remains sluggish. Still, we believe short term negatives are priced in. 
  • Taking a longer term view, FR offers a good 3-year forward FFB output CAGR of 10%. 
  • Maintain BUY with an unchanged TP of SGD1.71 on 17x 2016 PER.

FFB yield fell 23% YoY in 2Q16

  • Last night, FR announced its 2Q16 FFB nucleus output of 477,727 MT (- 16% YoY, +9% QoQ), bringing 1H16 FFB output to 917,038 MT (-16% YoY). 
  • 1H16 met just 37% of our full year forecasts, below expectations. The lagged effect from the dry spell experienced in 3Q15 hurt FR’s group FFB yield in 2Q16 as it contracted 23% YoY to 3.4t/ha.

Weak 2Q output priced in

  • In 2Q16, MPOB’s spot CPO price averaged USD650/t (+8% YoY, +13% QoQ). Taking into account the USD50/t CPO export levy imposed by the Indonesian government since 16 Jul 2015, the net CPO price received by FR will likely be flattish YoY but 26% higher QoQ. 
  • Given the improved QoQ output, we estimate FR to report 2Q16 core PATMI of ~USD20m (1Q16: USD5m), though this would represent just about 17% of our full- year earnings estimates.

2H16 output & earnings to play significant catch up

  • We have probably witnessed the worst quarterly YoY decline in 1H16 as the lagged impact of El Nino typically peaks 6-9 months from the last drought. 
  • Although we expect significantly better HoH output in 2H16, there is still a risk that our -1% FFB output growth for 2016 (in line with management guidance) may not be achieved if production recovery in 2H16 turns up slower than anticipated. 
  • Nonetheless, we believe the negatives have been largely priced in given recent sell down on the stock. 
  • FR is a BUY; our TP is based on unchanged 17x 2016 PER (+0.5SD of historical mean for this sector bellwether).

Ong Chee Ting CA Maybank Kim Eng | 2016-05-15
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.70 Down 2.08